How Do Economic Shocks Affect Family Mental Health Spending?

Families confronting economic shocks – either realized or anticipated losses of income, employment, and health insurance – face difficult spending decisions as they seek to protect their living standards. Such decisions may encompass changes in the use of medical care as families determine which services are essential to maintain or are more discretionary in nature.  At the same time, the stress and anxiety associated with an actual or expected loss of economic status can have a significant impact on the mental health status of family members, leading to new or more profound depressive or anxiety-related psychiatric episodes within the family. This, in turn, can result in new or additional expenditures for mental health care. How family mental health expenditures respond to altered economic circumstances will depend upon whether the changes in actual or expected income and out-of-pocket costs alter the family’s willingness to pay for mental health services. Underlying this change will be decisions by the family on how much to spend on health care,  who within the family should receive specific services, and what share of spending should be allocated to mental health care.

 We investigate how the family’s mental health care spending responds to actual or expected changes in its economic status by considering several aspects of family decision making. First, we consider how the family’s total and prescription drug spending for mental health care responds to economic shocks, applying generalized linear models of health care spending. Next, we apply fractional response models to examine how the share of the family’s total medical care spending allocated to mental health services responds to changes in its economic status. Finally, we apply models of family decision making to consider whether family members with mental health conditions are given priority when the family faces an actual or expected economic change

We implement these analyses using two-year panel data from the Medical Expenditure Panel Survey for the period 2004 to 2012. We identify families who report members with mental health conditions during the two-year observation period, and  assess the impact of actual and expected economic shocks on changes in the family’s mental health care spending over this time period. In each case, the impact of these economic shocks is estimated through fixed-effects econometric models which capture the within-family change in spending by accounting for unobserved, time-invariant family characteristics. We measure the presence of actual economic shocks by observed losses in the family’s income, health insurance, and employment status over the two-year period. We capture expected economic changes by exogenous changes in macroeconomic conditions, such as the onset and aftermath of the Great Recession, by changes in monthly unemployment rates, and by other indicators of the family’s future economic status, including potential changes in family wealth due to exogenous changes in stock market prices and housing values. The analysis thus provides a unique perspective on how a critical aspect of family health care spending responds to actual or expected changes in its economic status.